Asian Dollar bond issuance may hit $21 billion in 2003
Asian Dollar bond issuance may hit $21 billion in 2003
Nirmala Menon, Dow Jones, Singapore
U.S. dollar-denominated bond issuance in Asia, excluding Japan, could rise almost 20 percent from 2002 as issuers move to take advantage of favorable market conditions, Lehman Brothers said Monday.
New supply picked up after the war in Iraq, with an estimated US$6 billion of issuance in May and June, taking the gross amount in the first half of 2003 to roughly $11 billion.
For the whole of 2003, Lehman predicted gross issuance to reach $21 billion, near 1996 levels, and up from $18.2 billion last year, driven by record low rates, tight spreads and declining external risk. After deducting new supply in the first half year, that means there is another $10 billion of paper in the pipeline.
"With absolute yields near historic lows and the continuing appetite for yield, Asian issuers are likely to see this as a good opportunity to lock in long-term funding," the U.S. investment bank said in a report released Monday.
Minus redemptions, net issuance is expected to nearly double to $14 billion, from $7.8 billion. Lehman estimates bond redemptions to drop to $7 billion, from $10.4 billion last year.
The near-doubling in net issuance could cause some "indigestion" in the market, but this will likely be a short-term phenomenon.
"There are many positive technical factors that should continue to lend support for bonds, such as strong domestic liquidity, low interest rates, idle cash by investors and positive risk sentiment," Lehman said.
"These reasons lead us to believe that appetite for new paper will likely remain robust for the coming months," the bank added.
Rising stock markets could be a risk factor as yield- hungry investors switch from credit into equities.
However, Lehman noted that despite major rallies in the U.S. and Asian stock markets, there hasn't been a major widening of credit spreads, and the market remains receptive to new issues.
"We do not think equities are likely to pose a significant threat to Asia credit given minimal spread widening in the face of significant equity rally," Lehman said.
"Further, the soft global growth environment should keep interest rates low, which should be supportive for credit."
Major new supply is expected to come from Hong Kong, South Korea, and Malaysia.
Lehman noted that Hong Kong conglomerate Hutchison Whampoa still needs another $1.5 billion to refinance bonds.
Hong Kong railway operator MTR Corp. could issue $1-$2 billion for capital expenditure, while Hong Kong Electric may look to raise $500 million.
Another $1.5 billion worth of deals could come from South Korean corporates such as Posco, LG Caltex and Hyundai Motors. There could also be over $1 billion of issuance from Korean credit card companies.
South Korean issuers were especially prolific in May and June, accounting for almost $3.5 billion of new supply in that period, including the $1 billion 10-year benchmark sovereign offering last month.
There is also an expected $500 million offering from Penerbangan Malaysia Bhd., which sources said could come into the market in early July.